Key words : Binge-Watching, Subscription-based Video-on-Demand, Recommendation Reminders, Randomized Experiment

We study the effects of a self-regulation effort, orchestrated by the European Commission in 2016 and finalized in 2018, that aims to reduce advertising revenues for publishers of copyright infringing content. Data on the third-party HTTP requests made by a large number of piracy websites lets us observe the relations of the piracy and advertising industry over time. We compare these dynamics to a control group of non-advertising services which are not subject to the self-regulation. Our results suggest that the effort is limited in its effectiveness. On average, the number of piracy websites that make requests to EU-based advertising services does not change significantly. Only when we allow for heterogeneity in the popularity of third-party services, we find that the number of piracy websites that interact with the most popular EU-based advertising services decreases by 42%. We do not find evidence that non-EU-based advertising services react to the self-regulation. This implies that only a small share of the firms in the market comply with self-regulation in a way that is visible in our data. We also do not find evidence that the demand for piracy websites decreases due to this “follow the money” initiative.

In this proposal of a research agenda for cultural economics, we discuss the supply-side economics of the next wave of digital technological change.

We begin by arguing that digitization and internet-enabled platforms, together with automated licensing of user-generated content has substantially lowered the costs of individual-level cultural participation. We discuss how the dependence on advertising revenues may affect this dynamic and highlight some implications for the economics of copyright. Next, I discuss circumstances under which market data, which has become much less expensive to collect at more fine grained levels, can trigger differentiation of cultural products. Finally, we speculate about the economic implications of artificial intelligence that complements, or perhaps substitutes for human creativity with regards to cultural participation, copyright and the industrial organization of culture.

Recommender systems assign products to slots in ways that improve consumers’ experience when choosing what to buy. They usually lead to more sales, which increases both consumer surplus and profit. However, firms may also choose which recommender system to use to maximize profit. Furthermore, consumers tend to exhibit a lower price elasticity of demand towards products placed in salient slots. We show that a firm using this knowledge may increase its profit hurting both consumer surplus and total welfare. We use data from a large scale field experiment ran using the video-on-demand system of a large telecommunications provider to measure the price elasticity of demand for movies placed in salient and non-salient slots on the TV screen. During this experiment, the firm randomized the slots in which movies were recommended to consumers as well as their prices. This readily allows for identifying the effects of price and slot on demand and thus compute consumer surplus. We find empirical evidence that indeed consumers are less price elastic towards movies placed in salient slots. Using the outcomes of this experiment we simulate how consumer surplus and welfare change when the firm implements the recommender system that maximizes profit. We also show that, at least in our setting, this system still yields higher consumer surplus than some recommender systems often used in practice, such as lists of most sold, most rated and highest rated products. Our results question whether recommender systems embed mechanisms that extract excessive surplus from consumers, which may need to be better scrutinized.

In this paper we study the impact of time-shifting on TV consumption and ad viewership. We analyze the results of a field experiment in which a random sample of ”triple-play” households were given a set of premium TV channels broadcasting popular movies and TV shows without commercial breaks. A random subset of these households were given access to these channels with time-shifting (automated cloud recording for later viewing or rewinding of broadcasted programs), while the remainder were not. This design allowed us to identify the effects of time-shifting on TV consumption. On average, we found that receiving access to the channels with time-shifting increased total TV consumption because it increased time-shifted viewership while leaving live viewership unchanged. The increase in the live viewership of these channels was similar to the reduction in the live viewership of the originally available channels, resulting in a net zero effect on live viewership. It appears that time-shifting does not change the concentration of live viewership, but it does increase the concentration of total TV viewership, because it is used disproportionately to watch the most popular programs. Finally, we found that time-shifting does not change the likelihood of skipping ads during live viewership, suggesting that households do not use time-shifting to strategically avoid ads.

We partner with a major multinational telecommunications provider to analyze the effect of subscription video-on-demand (SVoD) services on digital piracy. For a period of 45 consecutive days, a group of randomly selected households who used BitTorrent in the past were gifted with a bundle of TV channels with movies and TV shows that could be streamed as in SVoD. We find that, on average, households that received the gift increased overall TV consumption by 4.6% and reduced Internet downloads and uploads by 4.2% and 4.5%, respectively. However, and also on average, treated households did not change their likelihood of using BitTorrent during the experiment. Our findings are heterogeneous across households and are mediated by the fit between the preferences of households in our sample for movies and the content available as part of the gifted channels. Households with preferences aligned with the gifted content reduced their probability of using BitTorrent during the experiment by 18% and decreased their amount of upload traffic by 45%. We also show using simulation that the size of the SVoD catalog and licensing window restrictions limit significantly the ability of content providers to match SVoD offerings to the preferences of BitTorrent users. Finally, we estimate that households in our sample are willing to pay at most $3.25 USD per month to access a SVoD catalog as large as Netflix’s in the United States. Together, our results show that, as a stand-alone strategy, using legal SVoD to curtail piracy will require, at the minimum, offering content much earlier and at much lower prices than those currently offered in the marketplace, changes that are likely to reduce industry revenue and that may damage overall incentives to produce new content while, at the same time, curbing only a small share of piracy.

The online appendix is available at https://doi.org/10.1287/mnsc.2017.2875.

This paper was accepted by Chris Forman, information systems.